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Seizing the Opportunity: Jobs and Change in the Arab World

Region has unique opportunity for fundamental reforms to enhance employment

WASHINGTON, October 10, 2012 – A young and increasingly educated population could be the source of prosperity in the Middle East and North Africa (MENA) region if an environment that promotes open competition is created, supported by an education system that teaches relevant skills, according to a forthcoming report from the World Bank Group. The report on Jobs in MENA offers a detailed analysis of the many factors that have contributed to one of the highest rates of youth unemployment in the world, along with one of the lowest rates for female participation in the labor force. It proposes a set of policy reforms to unlock the region’s large and untapped human potential.

“The call for bread, freedom and dignity is a mandate for change in the Arab World, and the expression of immense expectations, on the part of young people in particular,” said Inger Andersen, World Bank Vice President for the Middle East and North Africa. “Thispresents an unprecedented opportunity for enacting the reforms that will set the stage for higher growth and the more and better jobs the region needs. This report offers a formula for seizing this opportunity.”

Increased competition will be critical for converting the MENA private sector into an engine of economic growth and good jobs. The current environment continues to protect a limited number of privileged firms through complex and unevenly enforced regulations, and limited access to credit. This has resulted in an insider/outsider model that has limited innovation and creativity, which played such an important role in the fast growing economies of Eastern Europe and South Asia. The report identifies a number of remedies to ease the entry of new firms; including the aggressive simplification of business regulations, along with holding to account those responsible for enforcing them, and building the financial infrastructure necessary to expand access to credit. Lowering the barriers to both entry and exit would create a dynamic private sector, which encourages investment and innovation, and ultimately increases the demand for labor.

In addition to an environment that stifles competition, MENA is also subject to a set of regulations and incentives that make hiring difficult, and encourage investments in machinery over labor. In the same way current rules protect a limited number of firms, labor laws that restrict an employer’s ability to manage the workforce end up protecting the privileged few with jobs (mainly older men). The report recommends strengthening unemployment benefits and safety nets while easing regulations to increase the mobility of workers and encourage more hiring. This should be accompanied by the removal of energy subsidies that make it cheaper to buy and operate more machines rather than hire new workers.

Once the private sector is ready to hire, reforms will be needed to ensure it can find the skills required. The public sector continues to dominate employment in MENA, with its promise of job security and better conditions. This has led to the phenomenon of the most talented and skilled essentially standing in line and waiting for public sector jobs that provide high individual returns, but are not necessarily associated with the highest social productivity. Success in this environment is all too often dependent on connections rather than aptitude; again excluding all but the most privileged. It has also influenced education systems, which focus on providing students with skills relevant to the public sector, at the expense of those required by the private sector.

MENA has one of the highest numbers of employers that complain about the difficulty of finding prospective employees with the right skills. The report proposes diminishing the pull of the public sector by making its salaries and benefits symmetrical with the private sector, and reforming education systems to ensure they equip students with more relevant skills. Specific policies would also be needed to address the barriers women face, by guaranteeing a safe working environment, and compensating for the additional domestic burdens they shoulder. The sum total of these reforms would guarantee the flow of the most skilled labor to the most productive sectors of the economy. A closer relationship between universities and the private sector would not only foster the design of more appropriate courses, but also help students make informed decisions about their educational choices.

“Young people in the region need a clearer path from school to work,” said Steen Jorgensen, MENA Director for Human Development at the World Bank. “The private sector should signal to students what skills are most valued, and higher education needs to adapt and offer students courses that respond to those signals.”

Beyond identifying problems and offering solutions, the report recognizes the challenge policymakers face in building and maintaining the consensus needed for change. The powerful demand for democracy and an end to the system of privileges provides a significant mandate. Going forward, the process should be fully transparent and aim to engage the new constituencies that emerged from the ‘Arab spring.’ With investments in early visible and measurable gains, governments in MENA could consolidate their credibility. This could take the form of investments in training programs to help people develop new skills and increase their employability, as well as the launch of labor intensive public works projects to develop critical infrastructure and social services using public/private partnerships. This would set the stage for the game-changing reforms that would drive competition, generate jobs, and allow the region’s great human potential to become the source of prosperity.

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